Accounting fundamentals: Chapter 3 - Recording Financial Transactions

These flashcards cover key concepts related to recording financial transactions, including terms and definitions related to computerised accounting systems, payroll, source documents, and accounting processes.

Computerised accounting system

An accounting system using technology to record, process, and store financial information efficiently.

ERP (Enterprise Resource Programme)

A single system that manages many areas of a business, such as finances, HR, and inventory.

State the underlying elements of accounting systems

The basic parts of an accounting system, used to record and report finances: inputs (like source documents), processes (like record keeping, updates), and outputs (like financial reports).

Cloud accounting

Accounting that uses the internet to access software and data from anywhere.

Cloud computing

Accessing computer services and data online, rather than on your own device.

Source document

A document proving a business transaction, like an invoice or customer order.

Credit sale

A sale where the customer pays for goods or services at a later date, documented by a sales invoice.

Credit sales system

A system managing sales where customers buy now and pay later, tracking what they owe.

State the credit sales system process

A set of steps for handling sales where customers pay at a later date, involving order taking, credit verification, product delivery, invoice issuance (where the accountant entry takes place), and payment collection.

Credit purchases

When a business buys goods or services now and pays for them at a later date.

State the credit purchases system process

The simple steps for a business buying now and paying later: ordering, receiving goods, getting an invoice, and making the payment.

Credit notes

A document that shows a customer owes less money to a business, often because they returned something or were charged too much.

Debit notes

A document sent by a buyer to a seller, often used to formally request a credit for returned goods or to correct an overcharge.

Goods Received Note (GRN)

A document that verifies the receipt of goods from the supplier, used in the accounting system to record purchases.

Examples of transactions that accounting systems usually recognise

• Sales

• Purchases

• Payments received

• Payments made

• Employee payroll

Examples of transactions that accounting systems usually don’t recognise

• Non-financial events (e.g., good customer relationships, internal documents, or one-off interactions without financial implications)

• Future potential events (e.g., an anticipated sale)

• Qualitative information

• Personal transactions

• Donations

• Internal transfers

Payroll

The record of wages and salaries costs for employees, including deductions and net pay information.

Net pay

The amount an employee takes home after all deductions such as taxes and retirement contributions.

Gross pay

The total amount earned by an employee before any deductions.

State the expense to employers

• Gross pay

• Employer’s National Insurance (NI) contributions

• Pension contributions

State the expense to employees

• Income Tax

• Employee’s National Insurance (NI) contributions

• Pension contributions

Exception report

A report showing unusual or unmatched transactions that need checking.